RSSAfrica Is Fragile, But It Could Have Much to Offer In Frontier ETFs
By Tom Lydon | July 11, 2008 | 6:50 PM | 1 Comment
In just the last few weeks, two new exchange traded funds (ETFs) and one index was launched that have holdings in an area of the world that might have once upon a time seemed unthinkable to invest in: Africa.
The PowerShares MENA Frontier Countries Portfolio (NSDQ: PMNA) began trading last week, and has assets in Egypt (16.1%) and Morocco (12.2%). Earlier, Claymore launched the Claymore/BNY Mellon Frontier Markets (NYSE: FRN), with holdings in Egypt, as well (17.4%).
On Thursday, Dow Jones Indexes came out with the Dow Jones Africa Titans 50 Index, a pan-African index that measures the stock performance of 50 companies that are headquartered in or generate a majority of their revenues in Africa.
The index includes direct or indirect exposure 11 markets in Africa: Angola, Democratic Republic of the Congo (DR Congo), Egypt, Equatorial Guinea, Ghana, Kenya, Mali, Morocco, Nigeria, South Africa and Zambia. The index has been licensed to Van Eck and the anticipated ETF is Market Vectors Africa Index (AFK).
What's going on? Some of these countries, such as Congo, have been known more for political volatility than investment opportunity.
It's true that Africa is hardly out of the woods yet - hence the moniker "frontier market." It's still a continent that in most cases is still trying to find its footing and overcome disease, drought and extreme poverty.
As of July 2005, the continent is one that's home to 887 million people across 54 states, and it's the world's poorest inhabited continent. But Africa has some valuable exports, in the form of minerals and petroleum. The Southern countries have huge reserves of gold, diamonds and copper. Petroleum is concentrated in Nigeria and Libya.
The economic outlook for the area has been improving, even though the continent is still considered fragile. The World Bank said late last year that there's reason to be optimistic, with a decade of growth of 5.4% behind it.
But the bank also says that investment needs to continue if the country's growth is going to be sustained. Much of the growth has come in the telecommunications sector. In the 1990s, 21 of every 1,000 homes had phones. In the 2000s, 90 of every 1,000 homes have them. Households have also seen the quality of their water and sanitation improve.
Frontier markets ETFs can be a safer, more diversified way to access Africa's growing countries and take advantage of growth if it continues.
Check out Tom's new book iMoney here.
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